3 Stocks That Should Get Some Help From a Short Squeeze

by Johnson Research Group | May 30, 2014 9:16 am

The S&P 500 and other indices are trading at new all-time highs, and yet the shorts are alive and well. Of course, that’s great news for those of us looking to take advantage of potential short squeeze situations to ride stocks even higher.

Click to Enlarge Short sellers appear split on where the market might see some weakness over the next few weeks. For example, short interest on the SPDR S&P 500 ETF (SPY[1]) saw an increase of 5% over the last two-week reporting period, while the technology and small-cap sectors of the market saw declines in short interest of 5% or more — likely due to recent short covering as these sectors have been relative strength leaders.

The table below identifies the top 20 short squeeze candidates from our proprietary system, which looks for companies and ETFs that are technically strong and also have short interest that is rising from already relatively high levels.

Historically, this “signature” is indicative of companies that are likely to squeeze short sellers out of their bearish bets, driving prices higher as these bears are forced to cover their shorts.

Short Squeeze Candidates: Equity Residential (EQR)

Click to Enlarge The REIT market continues to heat up as investors are looking for less volatile income alternatives. Despite the technical strength and fundamental story, the bears remain defiant on names like Equity Residential (EQR[4]).

The company’s short interest ratio is registering its highest readings since 2012, so the next move to $63 will put the short sellers on the run to cover their positions as buyers.

We expect the short squeeze to help move EQR toward $66 and higher over the short-term outlook.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.